New power plant idled by economy

Minnesota's second-largest electric company has spent $437 million on a recently completed coal-burning power plant 85 miles west of Fargo.

Built with the encouragement of North Dakota's political leaders, the plant burns lignite mined in that state. It has best-available pollution controls and draws city wastewater instead of fresh water. At full power, the new plant could supply about 63,000 homes.

Instead, owner Great River Energy is shutting it down.

While investing hundreds of millions of dollars in power plants always carries risks, the tale of the Spiritwood Station is an extreme case. The head of an industry trade group couldn't remember another new U.S. coal plant built to supply power all the time that was immediately mothballed.

A combination of factors made Spiritwood a financial drag on Great River Energy (GRE), a Maple Grove-based wholesale cooperative serving 650,000 customers from the Iowa state line to the Canadian border. These included slower-than-expected growth in electricity demand, lower prices on power sales to the grid and the loss of a key industrial customer for some of the plant's steam.

"We could run it, and lose money half the time," said Rick Lancaster, vice president for generation at GRE.

Shutting it down isn't cheap, either. GRE said it has budgeted $30 million next year to maintain the plant and to cover interest on bonds and some depreciation. Nine employees have been hired to maintain the plant, whose boilers and turbines ran for several weeks of testing that ended this month, Lancaster said.

GRE, which is owned by 28 Minnesota electric cooperatives, expects to keep the plant off-line until 2013, perhaps longer.

Even critics of coal point out that Spiritwood is cleaner-burning than other operating coal plants. But free-market pricing and grid bottlenecks can mean that cleaner energy sources, even wind power, are unable to compete against dirtier generators.

"GRE is being penalized for being an environmental innovator," said Brad Crabtree, policy director for the Great Plains Institute, a Minneapolis-based nonprofit that works with industries on environmental issues and has received funding from the co-op and other utilities. "They invested extra resources to do the right thing environmentally and to build the most efficient advanced-combustion power plant in the Midwest region, but they are not rewarded in the marketplace."

The lignite burned at Spiritwood is first processed elsewhere using technology that GRE developed to dry the coal and remove some of the mercury and sulfur. While generating electricity, the plant also can produce steam for sale to nearby industries, a highly efficient process known as co-generation.

Douglas Biden, president of the Electric Power Generation Association, an industry trade group, said few coal-fired plants have been getting built in recent years because of concerns about future federal regulations related to global warming -- often called carbon taxes or offsets -- that could make them more expensive to operate. Spiritwood avoided Minnesota's carbon-offset rules because the state Legislature exempted it.

"It is probably the only coal plant built for base load that was completed and then mothballed," Biden said.

Another environmentalist sees the fate of Spiritwood Station as confirmation that coal power plants are no bargain.

"They are a huge risk for companies," said Mark Trechock, staff director of the Dakota Resource Council, a North Dakota environmental group. "They are very expensive, and coal prices are going up. ... It just doesn't pay."

Lancaster, of GRE, rejects such end-of-coal arguments. He said the plant is a victim of market forces. Indeed, regional pricing for electricity has been so low that the co-op reported losing money last year when selling its wind power on the grid.

Bad breaks from start

Spiritwood Station has gotten bad breaks almost from the beginning.

In 2006, North Dakota's former governor asked GRE to consider a power plant that also would supply steam to a large malt plant in Spiritwood, N.D., owned by Cargill and to a new ethanol plant proposed for a nearby industrial park.

At the time, GRE's electricity demand was growing, and the co-op envisioned a need for more generation.

When construction of Spiritwood began in October 2007, it immediately faced higher prices for steel and other commodities, causing the cost to grow from $277 million to $350 million, Lancaster said. Soon the financial crisis and housing recession hit.

In 2008, power demand by the co-op's customers fell. Forecasts of future needs were cut, and the price of power sold to the grid dropped, Lancaster said. Then the ethanol plant project was canceled, taking away a key steam customer and making the power plant less efficient to run.

GRE decided to keep building Spiritwood Station rather than incur a $190 million loss, regulatory filings say. But it delayed the plant's completion, and deferred $87 million in bond interest during the slowed construction, Lancaster said.

Still needing a second steam customer, GRE says it intends to create one. The co-op has acquired land and launched a joint venture to build a corn-ethanol plant and a second biomass, or cellulosic, ethanol plant.

It won't be the co-op's first venture into ethanol. It co-owns a large plant at one of its other North Dakota power stations. Lancaster said the goal is to have the new corn-ethanol plant at Spiritwood in full operation by the end of 2013. The cellulosic plant, using technology from Inbicon of Denmark, would come later.

That timetable means GRE may have to generate power at Spiritwood in 2013 at reduced output, Lancaster said. It's not technically feasible to quickly cycle coal-fired boilers on and off for peak loads only.

All of this has left the 28 member co-ops and their customers waiting for an unusual set of economic jigsaw pieces to fall in place -- and paying a price in the meantime.